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Germany’s central bankers are up in arms over a management consultant group’s “modernisation” plan for the Bundesbank, which aims to cut hundreds of jobs and overhaul work practices as the institution attempts to defuse political criticism of its mounting losses.
Unrest has been bubbling at the Bundesbank, a conservative and secretive pillar of the German establishment, since Joachim Nagel became its president last year and it hired Boston Consulting Group to make it more agile and efficient, several people familiar with the plans told the Financial Times.
“The mood among staff is at rock bottom,” said one insider. “BCG does not have a clue how a central bank works and what its legal duties are. They have compared the work on monetary policy to a carmaking production line, which is complete nonsense.”
However, the Bundesbank said its plan, dubbed “Wandel” — meaning change in German — was “a modernisation process aimed at transforming the bank into a future-proof, agile and digital organisation that needs to respond swiftly to complex and evolving challenges”. It added: “The world is changing and hence so is the Bundesbank.”
The consultants aim to cut staff numbers by not replacing many in the baby-boomer generation who will retire over the next four years. Extending a target from an earlier restructuring plan, it aims to bring full-time equivalent positions down by about 5 per cent from 10,294 last year.
People familiar with the plan said it was directing the Bundesbank to become more of a service provider to the German public sector by offering to passively manage a greater share of state pension funds and other pools of government money.
To inject more flexibility into the central bank’s rigid structure, in which many staff work in separate silos, the consultants are suggesting it creates new cross-department teams drawn from different areas.
Three people briefed on the plan said it reflected growing unease at the Bundesbank over losses caused by the sharp rise in interest rates. It has said the losses are likely to burn through more than €20bn of provisions and capital in the coming years. The federal audit office warned recently that the Bundesbank might need a bailout to cover its rising losses.
But the central bank denied that its expected losses were one of the main drivers behind the decision to hire BCG, a US-based group that is one of the world’s biggest corporate advisers. The last big restructuring of the central bank took place shortly after the euro was launched, when it was advised by McKinsey, the US consultancy.
The main reason for “reviewing its tasks and exploring the potential for optimising processes” was to ensure it had “a state of the art working environment” and maintained its “important and formative role” in central banking and financial supervision, it said. BCG said: “We are not commenting on any (potential) client work.”
Some staff members believe the shake-up is overdue. “Any change in this institution is positive,” said one, describing its structure as “ossified”, wedded to “outdated economic orthodoxy” and working in an “extremely bureaucratic way”.
The arrival of PowerPoint-wielding management consultants led to an inevitable “culture clash” in the staid and tightly wound world of the Bundesbank, said one insider. Another said of BCG’s ideas: “It’s all buzzwords.”
“The senior partners at BCG have experience and knowledge of central banking but the junior consultants don’t, so the staff have to explain everything to them and that’s very annoying,” one former employee said.
Former Bundesbank president Axel Weber, who led the bank from 2004 to 2011, joined BCG as a senior adviser earlier this year. However, a person familiar with his tasks told the FT that he was not involved in the Bundesbank project, adding that he was working with a separate team.
The central bank won widespread public admiration for its swift interest rate rises after the oil shocks of the 1970s, which helped Germany to avoid the double-digit inflation that plagued much of the western world. Former EU president Jacques Delors said: “Not all Germans believe in God, but they all believe in the Bundesbank.”
Nagel has led calls for higher interest rates since eurozone inflation soared to record highs in the past year. But since higher rates left the Bundesbank nursing big losses, it has saved money by reducing the amount of interest it pays on government deposits. It has also pushed for a similar eurozone-wide shift on commercial banks’ deposits.
While the Bundesbank transferred much of its power to the European Central Bank when the Deutsche mark was replaced by the euro in 2002, it still operates nine regional offices and 31 branches across the country.
Opposition to the ideas of the BCG consultants is particularly strong among the almost half its staff who still work in these regional outposts, which supervise commercial banks in their area and distribute cash.
The upheaval comes at a time of flux on the six-person Bundesbank board, half of which is appointed by the federal government and half by the regions. Johannes Beermann has not been replaced by the Hessen regional government since leaving the board at the end of last year. Claudia Buch is stepping down as vice-president to become head of supervision at the ECB in January and Joachim Wuermeling is also leaving at the end of this year.
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